Consolidated Media wins fight against Tax Office

The case centred on a 2002 transaction where Crown bought back 840 million ordinary shares from Publishing and Broadcasting Ltd (PBL), returning $1 billion in funds PBL had loaned. The Australian Taxation Office (ATO) treated part of that transaction as an assessable capital gain and issued tax assessments for the 2002 and 2005 years. Consolidated Media Holdings (CMH) appealed the ATO’s treatment, arguing the off-market share buyback with Crown should be treated as a tax-effective dividend rather than a capital gains event.

A three-judge Federal Court panel (Justices Margaret Stone, Andrew Greenwood and John Logan) upheld CMH’s appeal, allowing CMH to treat the $1 billion off-market buyback with Crown as a tax-effective dividend rather than being taxed as a capital gain. However, the court declined to award CMH the legal costs from the earlier Federal Court fight because the appeal’s development differed markedly from the primary hearing.

The ATO’s determination had put an assessable capital gain at about $402.46 million. During last year’s Federal Court hearing it also emerged that tax losses and other rebates available to CMH would have completely offset about $339 million of tax that would have been payable if the amount had been classed as a dividend.

Consolidated Media Holdings is more than 70% owned by companies associated with James Packer and Kerry Stokes. CMH was formed when Publishing and Broadcasting Ltd (PBL) split its media and gambling arms in 2007.

In 2002 Crown bought back 840 million ordinary shares from PBL, returning $1 billion in funds that PBL had loaned. That transaction is the focus of the ATO’s tax assessments and CMH’s appeal. For everyday investors, the case highlights how the tax treatment of buybacks and dividends can materially affect company tax outcomes and shareholder returns.

The court’s decision allowed CMH to treat the buyback as a tax-effective dividend rather than a capital gain for the disputed years, which removes the ATO’s capital gains assessment in this appeal. In addition, evidence in the earlier hearing showed CMH had tax losses and rebates that could offset significant tax amounts. However, the article notes CMH’s disputes with the ATO are not fully over, with further appeals against other ATO assessments reported.

The judges said CMH’s case before the appeals court was developed quite differently from how it had been presented in the primary judge’s hearing. Because the appeal relied on a different statutory construction and was not simply a continuation of the earlier forensic accounting arguments, the court decided it would not allow CMH to claim the legal costs from the previous year’s fight.

While CMH succeeded in this appeal, the article notes the company still faces additional rounds of appeals against ATO assessments for other tax years. For investors, the ruling provides clearer precedent on how this specific buyback was treated, but ongoing disputes mean tax outcomes and any retrospective liabilities for CMH could remain uncertain until all appeals are resolved.